Labor market competitiveness and the size of the informal sector

Hideaki Goto, Yukichi Mano

Research output: Contribution to journalArticle


This paper formalizes the dynamics of the informal sector with a special emphasis on the levels of labor market competitiveness in the formal and informal sectors. Specifically, it analyzes the effects of improved productivity and higher entry costs into the formal sector on the size of the informal sector for different degrees of competitiveness in the labor markets. We show that when the informal labor market is competitive while the formal labor market is not, lower production technology in the formal sector or a higher entry cost reduces the size of the informal sector in the long run.

Original languageEnglish
Pages (from-to)495-509
Number of pages15
JournalJournal of Population Economics
Issue number2
Publication statusPublished - 2012 Jan



  • Entry costs
  • Imperfect labor market
  • Informal sector

ASJC Scopus subject areas

  • Demography
  • Economics and Econometrics

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